As of January 15, 2009, the FDIC had received 1,615 total applications and had recommended 408 applications (or about 25% of the applications it had received) to Treasury for approval, of which 267 had been approved by Treasury. In accordance with Treasury instructions, the report found that the FDIC processed publicly traded applicants first, followed by privately held institutions. However, the report also shows that some private applications (and even two Subchapter S organizations) were forwarded to Treasury while some public applications appeared to remain pending.

As of January 15, 2009, the FDIC had received 321 applications from public companies, 851 applications from private companies, 365 applications from Subchapter S organizations (although the term sheet had only been announced the day before), and 45 applications from mutual organizations (although no term sheet has been announced). The report notes that there are approximately 1,660 additional Subchapter S or mutual organizations that were still eligible to apply.

The report also breaks down the applications by FDIC regional office. The Atlanta regional office had received the most applications, with 345 applicants, 76 of which had been recommended to Treasury and 61 of which had been approved by Treasury. The Chicago and Atlanta regions had forwarded the smallest percentage of received applications to Treasury for approval, with 10% and 22% forwarded for approval, respectively. The New York and San Francisco regions, on the other hand, had forwarded 39% and 35% of their received applications to Treasury for approval.

FDIC Processing

The report concludes that, on average, regional offices were taking 16 calendar days from the time an application is received to review the application and forward a recommendation to FDIC Washington. FDIC Washington then took an additional 17 calendar days to review and forward to Treasury, which in turn took, on average, 7 calendar days to approve the application. Using these averages, it would appear that “average” approval should take a total of only 40 calendar days. However, the report, with its data as of January 15, 2009, states that the FDIC estimates that it will complete its review of the remaining applications “in the second quarter of 2009.” The report also notes that the 141 FDIC-submitted applications to Treasury that had not yet received Treasury approval had already been there an average of 11 days, or over 50% longer than the stated averages.

Viability Standards

According to the report, the Treasury has provided each of the federal regulators a 2-page memo titled “TARP Capital Purchase Program Case Decision Memo” which documents Treasury’s standards for CAMELS and CRA ratings, as well as selected performance ratios. Treasury has also supplemented this information with informal guidance by e-mail, as the Treasury adjusted its standards based on the earliest applicants. While the Treasury standards are not public, the Inspector General confirmed that the FDIC is using the provided criteria.

As of December 10, 2008, the FDIC had forwarded 172 institutions for approval to Treasury, of which 90% explicitly met the Treasury’s criteria. The FDIC identified mitigating factors that permitted it to provide recommendations for 17 institutions that did not meet all of the Treasury’s criteria. As of February 11, 2009, 13 of these institutions had been approved by Treasury, and one had withdrawn its application. Based on our analysis of community banks that had received TARP Capital through February 2, 2009, we believe the Treasury’s criteria, especially with regard to performance ratios, have significantly tightened since that time.

Withdrawing TARP Applications

As of December 10, 2008, the FDIC had 57 applicants that had withdrawn their application. According to the FDIC, only 42% of the applicants were requested to be withdrawn, mostly because of CAMELS composite ratings of 4 or 5. Three of the applicants asked to withdraw by FDIC regional offices actually met the Treasury’s performance criteria. The stated explanation for each recommendation was “poor bank management.” The FDIC has revised its policies to provide that, for all cases where an applicant technically meets the Treasury criteria, the application should be forwarded to FDIC Washington for centralized review.

As of January 15, 2009, 127 institutions had withdrawn their applications, “a number of” which withdrew as a result of the increased monitoring and conditions proposed by Congressman Barney Frank.

Characteristics of Applicants Recommended for Approval

95% of the applicants recommended for approval by the FDIC had composite CAMELS ratings of 1 or 2, with the remaining 5% of recommend applicants having a 3 composite CAMELS rating. The report notes that three institutions were downgraded following submission of the FDIC’s recommendation. The Treasury was notified of each of these downgrades, and two of the banks subsequently withdrew their TARP application.

99% of recommended applicants had a Capital component rating of 1 or 2. The six recommend applicants that did not have a 1 or 2 each met “well capitalized” capital requirements. Two of these well-capitalized institutions did not meet the Treasury’s performance ratios, and the Treasury remanded both institutions back to the FDIC for additional support on the institutions’ viability.

The report also separately analyzed 172 recommended applicants in a detailed review sample as of December 10, 2008. Out of this sample, 99% of the recommended applicants had CRA ratings of Satisfactory or better, and 93% had a Compliance rating of 1 or 2.

The report notes that Treasury considers enforcement actions in making its decisions, but an enforcement action does not necessarily disqualify an applicant from consideration. As of January 15, 2009, the 408 institutions recommend for approval collectively had 34 board resolutions, 23 memorandums of understanding, and 3 cease & desists.

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